How Inventory and Supply Chain Challenges Could Impact Wolverine in the Back Half of 2022

Wolverine Worldwide cut its full-year revenue outlook after feeling the impacts of unplanned headwinds related to elevated wholesale inventory, foreign exchange rate pressures, and some lingering supply chain delays.

On the company’s quarterly earnings call on Wednesday, Wolverine CEO Brendan Hoffman said that Q2 was impacted by two main factors. First, in June, the company began to experience order postponements, as certain U.S. retailers were faced with excess inventory in distribution centers and stores.

Hoffman said that the company is working closely with its retail partners to move through product and in some cases turning to drop shipping and direct-to-store shipments to help alleviate this current pressure.

The second factor was the company experienced softness in its e-commerce channel in the second quarter. E-commerce revenue was down 7% on an organic basis as compared to the same time last year, Hoffman noted. “We believe this is largely attributable to a change in shopping behavior from what occurred during the pandemic, with consumers now partially reverting back to in-store shopping and shifting towards experiential spending,” the CEO said.

As a result of these headwinds, which are likely to persist through the back half of the year, Wolverine is revising its guidance to reflect higher promotional activity and challenges related to moving inventory through its wholesale channels. “While we are reducing our margin outlook for the second half, we are taking actions to reduce costs, increase efficiencies and marketing spend, and take strategic price increases, all of which will contribute to improved longer term profit,” Hoffman added

The Rockford, Mich.-based footwear and apparel company now expects full-year revenue in the range of $2.74 billion and $2.79 billion, down from its previous estimate of between $2.775 billion and $2.85 billion.

Despite the revised full-year guidance, Wall Street was undeterred, with Wolverine Worldwide’s stock up 1% at the closing bell on Wednesday.

In the second quarter of 2022, Wolverine Worldwide reported revenues of $713.6 million, representing growth of 12.9% versus the prior year and 25.5% versus 2019. Net income came in at $124.5 million in Q2, up from $44.4 million a year earlier.

Its international business performed particularly well, up 45.3% to $295.2 million driven by strong demand. Merrell also delivered on the company’s expectations, with revenue growth of 14% to $203.5 million versus 2021.

At Saucony, revenue grew 7% in Q2 to approximately $135 million. But Hoffman noted on the company’s quarterly earnings call on Wednesday that the brand fell slightly short of the expectations, primarily due to more discounting related to excess inventory in the channel.

Disappointment came at Sperry as well with the brand reporting a negative shift in sales in Q2 with revenue of $70 million declining 13% versus last year. “Significant order postponements from retailers combined with isolated cancellations to the late arriving product were the primary drivers on the revenue miss,” Hoffman said on Wednesday’s call. “We continue to work towards diversification in the wholesale channel, while working closely with our department store partners.”

At Sweaty Betty, revenue in the quarter was $47 million, down 23% versus the prior year per forma and down 11% in constant currency. Hoffman noted that continued macro headwinds in Europe and the U.K. specifically, were discretionary spending especially for apparel is under pressure weighed heavily on Sweaty Betty’s performance.

Overall, though, Hoffman is optimistic for the future. “During the second quarter, we made very meaningful progress on the important strategy work we started earlier in the year and remain excited about the future growth potential of our brands,” he added.

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